Tax efforts and tax evasion–economic development Nexus. Does institutional quality matter?

Figures & data

Figure 1. Path analysis.

Source: Author’s construct (2022).

Table 1. Equation level goodness of fit—variances, COD, SRMR

Endogenous variable	Fitted variance	Predicted variance	Residual variance	R^2	SRMR
EFWI (model 1)	0.2523	.1968	0.0555	0.7796	0.001
URBN (model 2)	17.2921	17.2125	0.07955	0.9954	0.002
INSQ	0.2555	.1819	0.0736	0.7119

Source: Author’s construct (2022).

Table 2. Tests of the significance and stability of the models

Observed variable	f-statistic	p-value	eigenvalue	modulus
EFWI (model 1)	55.9027	.000	0.000	0.000
GDPP (model 2)	349.2123	.000	0.000	0.000
URBN (model 3)	3418.6110	.000	0.000	0.000

Stability index = 0.

Source: Author’s construct (2022).

Table 3. Final path analysis

Exogenous variables	Model 1-EFWI		Model 2-URBN
	path coefficient	p-value	path coefficient	p-value
TVES	−0.0892	0.004	0.1232	0.000
TEFI	−30.5329	0.000	22.8426	0.004
TGDP	0.3304	0.000	−0.3945	0.000
LCOBR	0.5781	0.000	2.9283	0.000
CPII	−0.0208	0.000	−0.0015	0.602
CONS	3.3856	0.000	28.4765	0.000

Source: Author’s construct (2022).

Table 4. The impacts of tax evasion and tax efforts on institutional quality

Variable	Exogenous variables	Path coefficient	p-value
	TVES	−.1077	.002
INSQ	TEFI	−.1050	.989
	TGDP	.1293	.047
	LCOBR	.3567	.000
	CPII	−.0033	.289

Source: Author’s construct (2022).

Table 5. Summary of hypothesis testing

Endogenous		Exogenous
	Variable	TVES	TEFI
	EFWI	Rejected	Rejected
	URBN	Rejected	Rejected
	INSQ	Rejected	Rejected **
	Hypothesis	H1	H2
	Decision	Rejected	Rejected

Source: Author’s construct (2022).

**Not significant.

Table A1. Definition of variables and data sources

Variable	Definition	Data source
TVES	Tax evasion estimates (% of GDP)	Amoh and Adafula (2019)
TGDP	Tax burden	Bank of Ghana (BoG)
TEFI	Tax efforts index	WDI and Bank of Ghana (BoG)
LCOBR	Currency outside banks	Bank of Ghana (BoG)
CPII	Corruption perception index	Transparency International (TI)
EFWI	Economic freedom of the world index	Fraser Institute (FI)
URBN	Level of urbanisation	World Development Indicators (WDI)
INSQ	Institutional quality index	World Governance Indicators (WGI)

Source: Author’s construct (2022).

URBN is the level of urbanisation, proxied by urban population (% of total); TEFI is the tax efforts of taxing authorities; LCOBR is the natural log of the currency outside the banks; INSQ is the institutional quality index computed from the Principal Component Analysis.

Amoh, J. K., & Adafula, B. (2019). An estimation of the underground economy and tax evasion: Empirical analysis from an emerging economy. Journal of Money Laundering Control, 22(4), 626–645. https://doi.org/10.1108/JMLC-01-2019-0002

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